IMF projects stronger 2010 recovery from global recession

WASHINGTON (AFP) - - The International Monetary Fund on Wednesday raised its outlook for the global economy in 2010, but said recovery from the worst recession since World War II would be sluggish.

The IMF boosted its 2010 global growth forecast to 2.5 percent, an improvement of 0.6 point from its April forecast.

The updated IMF forecast was marginally worse for 2009, showing a contraction of 1.4 percent across the global economy.

"While the world economy is still in recession, the recovery is coming. But it is likely to be a weak recovery," the IMF chief economist, Olivier Blanchard, said at a news conference.

In an update to its semiannual World Economic Outlook (WEO), the IMF said that "the global economy is beginning to pull out of a recession unprecedented in the post-World War II era, but stabilization is uneven and the recovery is expected to be sluggish."

"Financial conditions have improved more than expected, owing mainly to public intervention, and recent data suggest that the rate of decline in economic activity is moderating, although to varying degrees among regions," the IMF said.

Nevertheless, "financial systems remain impaired, support from public policies will gradually diminish, and households in countries that suffered asset price busts will rebuild savings," curbing consumption.

The downturn now was expected to hit advanced economies harder this year, with a combined contraction of 3.8 percent instead of the flat growth previously seen. Weak 0.6 percent growth in 2010 was unchanged.

"The advanced economies as a group are still projected not to show a sustained pickup in activity until the second half of 2010, consistent with the April 2009 WEO forecast," the IMF said.

Among the major economies, the IMF significantly marked up estimates for the United States and Japan.

For the US, the IMF pointed to improvements in the labor and housing markets, industrial production, and business and consumer confidence.

The IMF projected the world's biggest economy would shrink 2.6 percent in 2009, two-tenths of a point less than the prior estimate, and grow 0.8 percent in 2010, instead of the zero growth previously forecasted.

It hiked its outlook for Japan to 1.7 percent in 2010, up a hefty 1.2 points. Growth this year in the second-largest economy was estimated at a negative 6.0 percent, instead of the 6.2 percent contraction previously forecast.

The downturn would hammer the eurozone harder. The IMF projected the 16-nation bloc would contract 4.8 percent in 2009, 0.6 point worse than the April forecast, and shrink 0.3 percent in 2010.

Germany, Europe's largest economy, was set to shrink 6.2 percent in 2009 and 0.6 percent in 2010.

Outside the eurozone, Britain's prospects brightened. The IMF forecast growth of 0.2 percent in 2010, instead of a 0.4 percent contraction, after the economy shrinks 4.2 percent this year.

Growth in the emerging and developing economies would accelerate to 4.7 percent in 2010 from 1.5 percent this year.

China would lead with expansions of 7.5 percent in 2009 and 8.5 percent in 2010, while India would grow 5.4 percent and 6.5 percent. Both countries were marked up about a percentage point for each year.

Global trade volume would plunge by 12.2 percent this year, a steep 1.2 points more than forecast in the April WEO, before increasing 1.0 percent in 2010.

The IMF said in an update of its Global Financial Stability Report that financial conditions have improved "as unprecedented policy intervention has reduced the risk of systemic collapse and expectations of economic recovery have risen."

But it warned against over-exuberance in markets amid signs of recovery.

"Because much of the improvement in financial conditions is due to the robust rally in risk assets since March, there is a risk of a significant market setback if financial markets get too much ahead of the pace of economic recovery," it said.